Bank of America - Short sale with collectible Debt

Hi,
Home in VA, served as my primary residence for 2 out of last 4 years.
$333k owed on primary loan with BofA (Bank of America)
$110k owned on secondary which is a heloc with BofA

I have got a very good contract for short sale that has been presented to the bank. Contract price is $401k. Primary/First trust gets fully paid off. The second (heloc) gets $39k.

I was excited that this would be slam dunk but BofA has come up with the following on acceptance letter from the second:

"BofA accepts the short-sale with $39k. The bank will release the lien and charge off the remaining debt as collectible balance. Our recovery dept will be in contact with you to collect this balance. Will report the account to credit bureau as "charged off" with remaining balance showed as owed to BofA"

At the bottom of acceptance letter they have me signing for:

"I will remain responsible for the unpaid balance. I also ack that status to credit bureau will be a charge off".

I am very concerned about this verbiage. Can someone please answer the following questions:

1. Is this BofA's way of keeping the right to file deficiency judgement?

2. Do I have a chance that BofA will accept 5-10% cash and declare it a done deal with no charge off? How do I approach BofA?

3. My short sale expert says that he has not seen any bank come after the borrower with deficiency lien after closing. My fear is that the chance still exists?

4. Is there a possibility that BofA would rather do a 1099 instead of a deficiency. I am fine with 1099 since I can prove that I had the house as primary residence for 2 out of 4 years and hence have to pay no tax on the 1099.

You "short sale expert" needs to negotiate that for you.............and they can do that............either that with the short sale the debt will be settled in full without deficiency, or to try to negotiate a promissory note for a settled agreed upon amount, again without a deficiency and reporting to the credit bureaus as debt settled in full.................

Best Regards,

Moe
Founder
LoanSafe.org - America's #1 Mortgage Forum
1-800-779-4547

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After many days of intense negotiations with different people and managers in the BofA Loss Mitigatigation department, BofA is sticking to their guns. I have talked to them personally, in addition to my real estate agent and the short sale expert I am working with. The result is as follows after talking to many (at least 10) different people at BofA:

- All say that there is no negotiation for a promissory note settlement or a 1099 before closing. At this point I have the acceptance letter from them and I should go to closing with that. After closing their recovery/advocacy deparment will contact me for recovery of deficiency.

- All say that BofA does NOT forgive debt - period.

- Half of them say that recovery will 1099 me for the deficiency as well as collect ALL of the funds, although over a period of time via installments. They will recover regardless of my financial condition to the extent of filing deficiency judgement.

- The rest half of them say that recovery department will talk to me to see what can be recovered. If I have nothing to pay back and refuse, they will just 1099 me. They will charge off the balance and it will show my credit report. BofA never files deficiency judgement for short-sales.

Any ideas what others are seeing with BofA out there. Are there any deficiency judgements being filed for short sales.

BofA will only forgive up to 15% of the balance owed. If your offer to them is for less than 85% of the balance owed, they will make you sign an agreement stating that you will pay back the difference.

There is no deficiency judgment in a short sale. If you do not agree to pay them the difference, they will not agree to the short sale, not release their lien on the property, and therefore the sale cannot continue.

The deficiency judgment comes into play in the event of a foreclosure, and this depends on the specific foreclosure laws of your state.

If anyone has any experience at all with Bank of America, PLEASE POST. This forum is significantly lacking in posts from B of A customers.

I had further discussions with couple more BofA loss mitigation department reps. They most seem to all concur that:

1. BofA does not forgive debt
2. There is no "settlement" before closing. The promissory note has me responsible for all unpaid balance
3. As shortinPA said, they typically never file deficiency judgement.
4. After the closing their recovery dept will get in touch with me and do this:
- try if I can pay all the deficient balance in installments
- if I can't pay, they will "charge off" the debt and it will show on my credit history for however long charge offs show on credit history.

They never get you in touch with their recovery dept before closing, however I fortunately got connected to the recovery dept. The lady was very nice. She told me that they will go in this order based on my circumstances, other assets and whether it was primary or investment home:

a- try if I can pay all the deficient balance in installments
b- try if I can pay a part of the deficiency (typically 40% but it can be less )
c- if I can't pay, they will "charge off" the debt and it will show on my credit history for however long charge offs show on credit history. I do get 1099 for the deficieny.
d- in some situations they sell the debt to some external collection after charge-off. The collection will then talk to me.

From these discussions and in my post above, I am getting the feeling that the worst that I can expect is to have to pay some percentage of the balance OR get a charge off on my credit report.

Any thoughts?? Does it look like an acceptable deal based on the fact that BofA is not willing to budge at all before closing. At least it is better than having to pay 100% of the deficiency.

I signed the letter and closed my sale last Friday. Here is what I have learned:

BoA will not do a release in advance unless the sale is 80% of loan value is recouped in the sales price. I have been told that after the paperwork processes in Buffalo NY, that the recovery department will be in touch to determine what to do about the balance. They will ask for income and expenses for the past six months to determine if it will be a 1099C, partial repay or full reaming

The specifics may be different for others, because BoA is going on guidelines for the owner of my mortgage (they sold it to Wells Fargo at some point). But this is their general process. They understand that this way of doing things is stressful for consumers and may change it in the future.

Bongocheeta, diamondpoint, or anyone else - Have you heard anything from BOA's recovery dept since you closed your short sales? I am in the same position, and after reading your entries I am thinking I should probably go ahead and sign the agreement they require to complete my short sale. I have my first and 2nd with BOA on a condo I have in FL with about 250K deficiency.

Diamonpointe, Bongo, Shortin or anyone. Could you please tell me if you have had any contact with BOA recovery dept yet? I am in the same position on a condo I own in FL with a 1st and 2nd with BOA. It looks like I will have to sign their agreement to proceed with the short sale. I have about $250 in deficiencies.

We have had several short sale offers that the 2nd (B of A) would not accept. They wanted 85% of $500k as stated above. We kept the first current to put more pressure - and we hoped they'd foreclose giving us a nice out via California Laws.

They choose to charge it off instead. The negotiator suggested we submit several repayment plans proposal over the last couple weeks. Mgt rejected them all and said they will only accept $50K down and $250K over 20 years.

Since the first isn't an issue as A) they get most their money back at a bank owned sale and B) if they foreclosure they lose they're right to come after the definceny - We think we're better off taking our changes with foreclosure.

Questions:

- Have you heard if B of A doing Deficency judgements?
- The B of A agent mentioned that if it goes into foreclosure, they'll ask for a stay? (not sure what this implies& why they do this..?)
- If they 1099 me can they still collect?
- Can they hand it off to collection agency without getting a Deficency Judgement?
- Is there any room for nego in front of the judge
- What kind of nego powers will the collections agency have?

Here is a suggestion for your problem. Rewrite your hardship letter to request a "Short Sale". Do not ask for a settlement. In order to offer a settlement, you must pay at least 85%.

If you need to pay less than 85%, the request for a "Short Sale" will result in you being responsible for the difference. Put in your hardship letter what your offer is to BofA, and make sure it matches the amount on the Hud-1 you submit with your package.

This should result in an approval letter where they agree to the offer, but that they will "charge off the remaining debt as a collectable [sic] balance." After that, it will go to the "Recovery Department", where the discussion on what happens with the difference between your offer and the difference in what you owed will occur.

We are still waiting to hear from someone who has been through this what their experience has been after closing. I read that a couple of people should be in the "Recovery Department", and it would be great if they could give some insight into what their experiences are.

I think that you would be better off trying this, before going the foreclosure route. What happens there depends on what state you live in.

We actually are in Recovery Dept as we speak. We got there via keeping the first current and not paying the second for 10 months. They will agree to 50% of the $500K... but that's just too big of a number for us. We're hoping that once the 1st forecloses and sets the court date that the second will be more flexible.

Or that they or a collection agency will be able to negotiate something better than $250K.

My short sale is still not final. However I know at this point that BofA will refer me to collection after closing as they charge off the debt. Has anyone been through recover or in recovery with BofA. What has the experience been like? What percentage of the balance owed were they willing to accept to settle? How soon after closing do they start calling you?

Diamondpointe have you gone through recovery? Any experience you can share with us, please.

I'm in recovery as my second got charged off. THey never called me I called them. THey want to settle for $50K down plus $200 over time out of a $500K loan. I've tried offering them $100K, 125K, 150K and $200K (over time) and they've turned them all down.

It's better than the 85% req'd by loss mit., but it still is unaffordable to us. Bongocheetah would love to chat with you in real time to strategize.

Does the loan forgiveness act not apply to shortsales?? Didnt Bush sign a bill for this last year.. Im getting worried.. Im with FF/HLS who just got taken over by BofA and we are trying to short refi..

Yes, it does apply to short sales, but like everything else, there are parameters, so search the internet to fully educate yourself on the bill & to not put yourself in a position for any unfortunate surprises.
There are many websites where you can read the actual bill that passed.

Back in September 2008, I had the option of accepting the short sale agreement with the balance charge off as collectible debt (similar to other here). I didn't accept it because it was very unclear what BOFA could do to collect the money (over $200K). However, now I realize that in California there's a law (CCP 580b) that I believe would have prevented the bank from collecting the deficiency. I'm thinking I should have accepted it at that time.

Bongo, what state are you in and, if not California, do you have any similar law?

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